Redwood Preps 2nd RMBS in Less Than a Month

Redwood Trust is back with its second offering of residential mortgage bonds in less than a month, according to Kroll Bond Rating Agency.

The $384 million transaction, Sequoia Mortgage Trust 2017-2, is backed by 486 prime quality, fixed-rate, fully amortizing residential loans. All but one have 30-year terms.

The pool’s weighted average loan age is 1.9 months.

Similar to previous Redwood deals, the borrowers in the pool have substantial equity in their homes, as evidenced by a weighted average loan-to-value ratio of 67.8%.

Approximately 24.3% of the mortgages are cash-out refinances, meaning they are taking on additional leverage. This is slightly higher than the percentage in recent Redwood transactions. However, Kroll takes comfort from the fact that cumulative LTVs of these loans, including other household debt, are still quite low, at 60.2%, on average. In fact, the 45.1% of loans used to purchase homes have even higher cumulative LTVs, 74% on average. (The remaining loans are non-cash-out refis that have average CLTVs of 65.7%.)

Among other risks, SEMT 2017-2 has three loans with a current balance that is above $1.5 million. The largest loan is approximately $1.8 million, which represents approximately 0.5% of the mortgage pool. “While the larger loans in the pool generally exhibit strong credit characteristics, property valuations of luxury homes can be complex and potentially subject to more volatility than valuations of conventional properties,” the presale report states.

At issuance, Redwood will retain the two most subordinate tranches (1.1% by balance), though this is done as part of its business model and not to comply with the risk retention rule. The sponsor is relying on the “qualified residential mortgages” exemption.